As tariffs continue to play a starring role in President Donald Trump’s unpredictable trade policy — stoking uncertainty at home and abroad — manufacturers continue to grow more pessimistic.    

The Purchasing Managers’ Index of manufacturing activity fell to 49 from 50.3 in February, signaling a shift into contraction territory, according to The Institute for Supply Management.

What little growth appeared at the start of the year has been wiped out as manufacturing activity now veers in the opposite direction. The survey’s report of soaring raw material prices coupled with drops in employment, production, and new orders could create a potentially dangerous mix. If manufacturing continues to falter alongside rising costs, the sector could edge toward stagflation, weighing on broader economic growth. Stagflation, a troublesome mix of high inflation and low growth, can vex policymakers as tackling one issue often worsens the other.

At this stage, it’s too early to use the S-word, noted John Hermann, president and founder at Herrmann Forecasting LLC, but the report shows U.S. factories are already stalling investments, putting expansion projects on hold, and gradually winnowing down their staff. 

“As growth decelerates, inflation remains resilient,” he said. “It’s now a question of when we’ll go from deceleration to slowdown, where you start seeing job cuts, production cuts, and businesses becoming even more cautious.” 

Manufacturers showed early signs of vigilance in February as President Trump’s tariff trade roulette with the U.S.’s largest trading partner kicked in. Fearing financial headwinds, factory owners rushed to stockpile inventories as Trump imposed tariffs on Canada and Mexico, only to later postpone them. But that was only the beginning. March saw a dizzying blur of tariff levies, concessions, suspensions, and delays. The ISM’s inventory subindex spiked to 53.4, up from 49.9 in February, suggesting efforts to fortify supplies against tariff shocks surged. 

On March 12, Trump imposed a 25 percent tariff on metal imports from all countries that sell steel and aluminum to the U.S. The European Union has responded with strong warnings of retaliation, including plans to revive tariffs from the president’s first term and introduce new levies on a variety of American goods, though no action has yet been taken.  

As global powers negotiate trade deals or issue threats to avoid tariff penalties, suppliers are capitalizing on the uncertainty to haggle over prices, noted Jeremiah Wann​​​​, CEO and President of Imperial Systems Inc., a manufacturer of air filtration equipment. 

“A lot of our suppliers are trying to get ahead of the (tariff) situation. We’ve seen people already try to pass cost increases along. It’s a negotiating tactic,” he said. “We’ve actually been pushing back pretty hard.”  

Wann now demands concrete proof from suppliers to justify passing on the cost burden due to tariffs, and he’s had success keeping costs as they are. He raises eyebrows when suppliers forecast future tariffs as justification because “right now, nobody knows anything.”

Steel is Wann’s biggest purchase item, but he says his company hasn’t felt any sting from trade levies. Instead, his domestic steel partners are expecting a rise in demand for U.S.-made steel, which is lining up more business opportunities for his products to support their production. 

According to Bill Adams, chief economist at Comerica Bank, U.S. manufacturers using domestically-sourced materials, such as steel and aluminum, gain an advantage from retaliatory tariffs by sidestepping the rising costs of imports. In contrast, those dependent on foreign components or global sales are squeezed by higher costs and diminished competitiveness. 

And while U.S. factories are currently in a moment of retreat, Adams warns that as their “precautionary” inventories run out, he predicts clearer winners and losers from Trump’s tariffs will start to emerge.   

But while some anchors of U.S. steel may favor these tariff charges, there isn’t “clear evidence of anyone celebrating,” argues Mike Englund, chief economist at Action Economics. Because there are no stable trading rules, businesses are left second-guessing their next move. 

Although details of the president’s new round of tariffs remain under wraps this week, Trump has indicated they’ll be reciprocal, matching tariffs imposed by other nations on U.S. goods. Investors and companies are hoping the peak of uncertainty has ebbed, and new details on his latest snafu will help provide some ounce of clarity about the president’s long-term tariff vision  — assuming he has one.